All Forum Posts by: Harish V.

In ideal conditions:

Pref equity receives higher ongoing distributions but no profits at sale

Common equity receives lower distribution and profit at sale (assuming their is cash flow left over after pref equity is paid and assuming their is profit at sale.

In non-ideal conditions

Pref equity may receive ongoing distributions less than pref, or no ongoing distributions at all, but the pref accrues. Depending on how bad the conditions are, accrued pref may never be paid out and original contribution may not be returned in full.

If pref equity's original capital contribution is not returned in full, common equity is in even worse shape. If pref equity's original capital contribution is returned in full, common equity may or may not have their original capital contribution returned in full. If it is returned in full, the pref equity will receive their accrued pref before common equity receives their accrued pref + share of profits.

So, common equity has "unlimited" upside but really no downside protection. All the "bad" affects them first.

Pref equity has a known capped upside and more downside protection, but as @Lane Kawaoka said, getting paid and/or getting your money back is not a guarantee. Once the common equity has absorbed all the "bad", the pref equity gets affected.

Another thing to think about with pref equity offered during a capital call. I've seen a lot of this lately where GPs are offering outside investors pref equity to effectively "save" the project from foreclosure. The new pref equity is given priority to the original pref and/or common equity. So that's another layer between you and getting your money back and/or paid. 

I eco what @Brian Burke is saying above, especially on "Pref is generally a shorter term than common equity, which means you need to have a way to redeem it out. This could come from an early sale or from a refinance" ... and that put you on the clock. "Over the last four tightening cycles, the time between the first hike and first cut averaged 2.2 years, and never exceeded 3.2 years" - credits for www.pensford.com 

More projects that are dead in the water.

• Botanical SouthPark, Austin - Projected construction completion (Oct 2023), Projected IRR 20%, Preferred return 8%
• Botanica Chase Hill, San Antonio - Projected construction completion (June 2023), Projected IRR 22%, Preferred return 10%
• Park Lane, Houston - Projected construction completion (July 2022), Projected IRR 22%, Preferred return 8%

 No, I didn't invest with them at all after learning your experience with Grocapitus.  They did contact me asking to invest despite initially telling me it was full (space opened up, etc, etc) but I just ignored them after learning other's experience.

Important note - All the negative comments about Grocapitus in this string are not related to Grocapitus performance. They are for a past company called Financial Attunement, where Neal was a minority partner from late 2015 to Feb 2018. Grocapitus has an absolutely stunning profit track record over 7 exits (see below) and 800+ happy investors in 31 projects.

I contacted Grocapitus a few days after their webinar presentation on Botanica Southpark.  I was told that the deal was full within minutes after the webinar ended.  Apparently 200 some people sent in signed paperworks within minutes.  I am puzzled how people were able to complete proper due diligence that quickly.  Or is Grocapitus really is that solid that people just have that much faith.  I am new to syndication investing so I really don't know which is the case here.  I looked at their Houston Fourplex presentation deck and it appears that the Southpark project is almost the same in terms of building design etc (the interior pictures of the fourplexes are exactly the same).

I too am considering investing in their Southpark fourplexes so would definitely appreciate people sharing their thoughts and investment experiences.